No written contract... but client had no right to throw contractor off site

Between 2001 and 17 September 2004, Orchard Construction extensively refurbished Higham House (the Old House Project) and built a pool complex for its owner, Mr Gallant. Although the total value of both was £1.8m, there was no written contract.

Initially, Orchard’s Mr Hayes submitted estimates for particular works on the Old House Project that were then agreed with Mr Gallant and work proceeded. Orchard also issued periodic schedules showing the estimates and invoices recorded with outstanding balances.

In 2002 Mr Gallant retained Stephen Langer Associates (SLA) to design the pool complex.

By March 2004, the pool complex budget was £1,105,113.13 (excluding VAT). When Mr Gallant expressed surprise, Mr Hayes pointed out that the figure was due to numerous client instructions and the generally higher work specification.

In July 2004 Mr Gallant said he would only pay for further work on a room-by-room basis. Mr Hayes refused as trades were working in several rooms at once and it would effectively mean no payments until all the work was completed.

By 3 September 2004, Mr Gallant had not paid Orchard since 12 June. At that time Mr Gallant wanted all building work completed by 17 December 2004. He was concerned that the December date would not be met and that Orchard was not paying its sub-contractors, suppliers and workforce properly. On 17 September 2004, Mr Gallant excluded Orchard from site and retained Orchard’s plant. Orchard had to use a court order to get it back. It took Mr Gallant another 13 months and £1.1m to complete the works.

When Orchard sued for the outstanding balance, including lost profit on the remaining work, Mr Gallant argued there was no contract in place. He also counter-claimed for Orchard’s defective work for £41,165.97.

However, the court held that Orchard and Mr Gallant were in contract. Mr Gallant had accepted Orchard’s various prices up to February/March 2003, after which he had agreed to pay a reasonable price for the work.

The judge found that Mr Gallant was wholly unjustified in expelling Orchard from site and his action amounted to a repudiation of the contract that Orchard had no choice but to accept. As a result, Orchard could recover its outstanding monies and the profit on the lost work.

The court carefully looked at each of Mr Gallant’s counter-claims for defective work. It found that either the work was done, or materials chosen, by others and not Orchard, and the counter-claim was dismissed.

Ann wright’s analysis

Domestic disputes always bring you back to contractual basics. This case involved formation of contract, repudiation, profit on lost work and counter-claims.

The law on forming a contract is governed by the so-called objective test. If a reasonable person would believe the parties intended to be bound, then a contract has been formed.

A contractor or client who receives an offer and then does nothing is not considered to have accepted that offer. However, if he had asked the other party for the offer, or it was made as part of a course of dealings, he may have to take action to reject it as silence may not be enough. Acceptance of an offer can be by conduct as well as by words.

Normally a breach of contract will not bring it to an end. However, the parties may agree that breach of a particular term is sufficient to terminate the contract.

Second, a contract can end if one party breaches a fundamental term where the other party is substantially deprived of the whole benefit of the contract. For example, if the employer in a construction contract constantly fails to pay the monthly instalments or if they say they will make no further payments, this is likely to be a breach of a fundamental term and is a repudiation.

However, the innocent party must confirm acceptance of the repudiation.

The danger, of course, is that a court may find that the actions of the employer, while being a breach of the contract, did not amount to full repudiation. In that case a contractor that stopped work too quickly may find they have repudiated the contract and are liable to pay the employer damages.

Besides a defence to the original claim, virtually every court case involves a counter-claim for damages, for example, for lateness or rectifying defective work. Any such counter-claims must be justified to the same standards as the original claim.